The United Arab Emirates, in alignment with its vision for economic growth and transparency, introduced corporate tax (CT) in June 2023. CT is a direct tax on the net income or profit of corporations and business entities.
This article delves into the nuances of this tax, particularly the exemptions available, ensuring readers gain a comprehensive understanding of the UAE’s evolving tax landscape.
UAE tax exemptions
The UAE’s corporate tax framework provides specific exemptions to ensure a balanced and business-friendly environment. These exemptions, detailed below, offer clarity on which entities and income types are not subject to the new tax regime.
Businesses involved in the extraction of natural resources
Entities engaged in the extraction of natural resources are exempt from CT, as they continue to be governed by the existing Emirate-level corporate taxation.
Dividends and capital gains
Earnings by a UAE business from its qualifying shareholdings are not subject to CT.
Qualifying intra-group transactions and reorganisations
Transactions and reorganisations within qualifying groups are not taxed under CT, provided they adhere to the stipulated conditions.
Individual earnings
Salaries and other employment income, whether from the public or private sector, are not under the purview of CT.
Income from bank deposits or saving schemes
Individuals earning interest or other income from bank deposits or saving schemes are exempt from CT.
Foreign investors’ income
Income sources such as dividends, capital gains, interest, royalties, and other investment returns earned by foreign investors are not taxed.
Real estate investments by individuals
Income derived from real estate investments made by individuals in their personal capacity is exempt from CT.
Income from shares or securities
Individuals earning dividends, capital gains, or other income from owning shares or securities in their personal capacity are not subject to CT.
In the next section, we will explore the objectives behind the introduction of corporate tax in the UAE and its broader implications for the nation’s economic landscape.
Objectives of introducing corporate tax in the UAE
The introduction of corporate tax in the UAE is not merely a fiscal decision but aligns with broader strategic goals. These objectives underscore the nation’s commitment to fostering a robust economic environment while adhering to international standards.
Strengthening the UAE’s global business position
The UAE aims to cement its reputation as a leading global hub for business and investment. By implementing CT, it seeks to create a transparent and standardised tax framework that appeals to global businesses.
Accelerating national development and transformation
The revenue generated from CT will be instrumental in accelerating the UAE’s development initiatives. It supports the nation’s transformational goals, ensuring sustainable growth and diversification of the economy.
Commitment to international tax standards
The introduction of CT reaffirms the UAE’s dedication to meeting international standards for tax transparency. It also showcases the nation’s proactive approach to preventing harmful tax practices, ensuring alignment with global best practices.
In the following section, we will delve into the scope of corporate tax, highlighting its applicability across various business sectors and entities in the UAE.
Scope of corporate tax
Understanding the scope of corporate tax is crucial for businesses and individuals operating within the UAE. This section outlines the entities and sectors that fall under the purview of the newly introduced tax regime, ensuring clarity for stakeholders.
Applicability to businesses and individuals
CT is applicable to all businesses and individuals conducting activities under a commercial license in the UAE. This encompasses a wide range of entities, ensuring a standardised tax approach.
Inclusion of free zone businesses
Free zone businesses are not exempt from CT. However, the UAE CT regime will continue to honour the CT incentives currently offered to free zone businesses that comply with all regulatory requirements and do not conduct business in the UAE’s mainland.
Foreign entities and regular business conduct
Foreign entities and individuals are only subject to CT if they engage in trade or business in the UAE continuously or regularly. This distinction ensures that occasional or one-off business activities by foreign entities remain outside the CT ambit.
Specific sectors: Banking and real estate
The banking sector, along with businesses engaged in real estate management, construction, development, agency, and brokerage activities, are included in the CT framework. These sectors, given their significant contribution to the UAE’s economy, are integral to the tax regime.
In the next section, we will detail the corporate tax rates, providing insights into the tax slabs and criteria that determine the applicable tax percentages for businesses.
Corporate tax rates
The tax rates for corporate tax in the UAE have been structured to ensure fairness and to promote a conducive environment for businesses of all scales. This section elucidates the different tax slabs and the criteria that determine the applicable rates.
Taxable income up to AED 375,000
Businesses with a taxable income up to AED 375,000 will benefit from a 0% tax rate. This provision is designed to support small and medium-sized enterprises (SMEs) and startups, allowing them to reinvest and grow without the burden of additional taxation.
Taxable income above AED 375,000
For entities with a taxable income exceeding AED 375,000, a tax rate of 9% will be applied. This slab ensures that larger businesses contribute proportionally to the nation’s revenue.
Special rates for large multinationals
Large multinational corporations that meet specific criteria set in reference to ‘pillar two’ of the OECD Base Erosion and Profit Shifting Project will be subject to a different tax rate, which is yet to be specified. This distinction acknowledges the unique operational scale and global footprint of such entities.
In the upcoming section, we will focus on the administration of Corporate Tax, highlighting the role of the Federal Tax Authority (FTA) in overseeing its implementation, collection, and enforcement.
Administration of corporate tax
Effective administration is pivotal to the successful implementation of any tax regime. In the UAE, the Federal Tax Authority (FTA) plays a central role in overseeing corporate tax nuances. This section sheds light on the FTA’s responsibilities and the resources it offers to businesses and individuals.
Role of the Federal Tax Authority (FTA)
The FTA is entrusted with the responsibility of administering, collecting, and enforcing CT. Its mandate ensures that businesses comply with tax regulations, and it acts as the primary point of contact for any CT-related queries or clarifications.
Registration and filing returns
Businesses subject to CT are required to register with the FTA. The authority provides comprehensive guidelines on the registration process, ensuring transparency and ease for entities. Additionally, the FTA offers resources on how to file tax returns, aiding businesses in adhering to deadlines and accuracy standards.
References and guides
The FTA provides several references and guides to assist stakeholders in navigating the CT landscape. These resources, available on the FTA’s official website, offer insights into various aspects of CT, from basic definitions to intricate compliance details.
Conclusion
The introduction of corporate tax in the UAE marks a significant shift in the nation’s economic landscape. Designed to align with international standards and bolster the UAE’s position as a global business hub, CT brings with it both responsibilities and opportunities for businesses.
By understanding the nuances of this tax regime, from its rates to its exemptions and administrative processes, entities can navigate this new fiscal environment with confidence and clarity.
